The Federal Reserve on Thursday announced its second consecutive interest rate cut, lowering the benchmark rate by 25 basis points amid economic data showing signs that inflation and the labor market are cooling.
With the 25-basis-point cut, the benchmark federal funds rate will sit at a range of 4.5% to 4.75%.
The Fed’s move follows a larger-than-normal cut of 50 basis points at its September meeting, which was the first rate cut since March 2020 and brought rates down from a range of 5.25% to 5.5% – the highest level since 2001.
The Federal Open Market Committee (FOMC), the Fed’s policymaking arm, noted that “labor market conditions have generally eased, and the unemployment rate has moved up but remains low. Inflation has made progress toward the Committee’s 2 percent objective but remains elevated.”
Policymakers noted in the announcement that they’re “attentive to the risks to both sides of its dual mandate” – which is to promote maximum employment and stable prices. All FOMC members voted in favor of the rate cut.
Fed Chair Jerome Powell said at the press conference that the “economy is strong overall and has made significant progress toward our goals over the past two years.”
“The unemployment rate is notably higher than it was a year ago, but has edged down over the past three months and remains low at 4.1%,” Powell said. “Overall, a broad set of indicators suggest that conditions in the labor market are now less tight than just before the pandemic in 2019. The labor market is not a source of significant inflationary pressures.”
He said of the Fed’s decision to cut rates by 25 basis points to a range of 4.5% to 4.75% that policymakers are aware that reducing rates too quickly could hinder progress on inflation, while moving too slowly could “unduly weaken economic activity and employment.”
“As the economy evolves, monetary policy will adjust in order to best promote our maximum employment and price stability goals. If the economy remains strong and inflation is not sustainably moving toward 2%, we can dial back policy restraint more slowly. If the labor market were to weaken unexpectedly, or inflation were to fall more quickly than anticipated, we can move more quickly,” Powell explained.
Powell was asked about the impact of the election on the Fed’s monetary policy decisions and planning around future rate moves and replied, “In the near term, the election will have no effects on our policy decisions,” noting that it’s unclear at this time what the substance of any fiscal policy changes would be and therefore the economic impacts are uncertain.
“We don’t guess, we don’t speculate, and we don’t assume. Now, just in principle, it’s possible that any administration’s policies or policies put in place by Congress could have economic effects that, over time, would matter for our pursuit of our dual mandate goals,” Powell said while noting they would study economic forecasts of such proposals using the Fed’s models.
He also fielded a subsequent question about whether expectations of higher budget deficits are keeping market interest rates elevated and if rising deficits concern him. Powell responded saying, “We don’t comment on fiscal policy,” and added “I don’t have a lot more to say on what’s driving bond yields.” He also explained that if, for example, Congress were to consider revisions to tax laws that could have an economic impact, they would study those projections.
Powell was asked about comments by some of President-elect Trump’s advisors about whether he would step down as Fed chairman if Trump asked him to resign, and he replied, “No.” He was asked in a follow-up whether he thinks he would be required to leave in response to such a request, and he said, “No.”
This is a developing story. Please check back for updates.
